Understanding the financial health of a company is an important factor in evaluating a potential business interaction with that company. An understanding of a company's financial health can be used to help evaluate the risks involved in doing business with that company, and can form a basis for predicting the expected benefits from the potential business relationship or transaction. However, fraudulent financial filings by the company can provide a misleading picture of the financial health of a company. Companies that engage in such fraudulent financial behavior can collapse in ways not reflected by the apparent financial health reflected by their financial information.
As a result of recent collapses of companies that were hiding their financial difficulties behind fraudulent financial data, investors and creditors are seeking ways to identify false or misleading financials before the time where the company's dire financial straits become apparent due to earnings shortfalls, scandals or bankruptcy.
While various subjective and intuitive approaches have been used to identify warning signs that might be detected in available financial data, these techniques tend to be time consuming and rely upon the particular expertise of well-trained individuals examining extensive financial data. Therefore, there is a continued need for improvement in the objectivity, ease of use, and speed of such techniques for detecting anomalous financial data.